Motor Company manufactures 10,000 units of Part M-I each year for use in its production. The following total costs were reported last year: Direct materials. P 20,000 55,000 45,000 70,000 P190,000 Direct labor. Variable manufacturing overhead. Fixed manufacturing overhead. Total manufacturing cost. Valve Company has offered to sell Motor 10,000 units of Part M-I for P18 per unit. If Motor accepts the offer, some of the facilities presently used to manufacture Part M-I could be rented to a third party at an annual rental of P15,000. Additionally, P4 per unit of the fixed overhead applied to Part M-I would be totally eliminated. Should Motor Company accept Valve Company's offer, and why? a. No, because it would be P5,000 cheaper to make the part. b. Yes, because it would be P10,000 cheaper to buy the part. c. No, because it would be P15,000 cheaper to make the part. d. Yes, because it would be P25,000 cheaper to buy the part.

Motor Company manufactures 10,000 units of Part M-I each year for use in its production. The following total costs were reported last year: Direct materials. P 20,000 55,000 45,000 70,000 P190,000 Direct labor. Variable manufacturing overhead. Fixed manufacturing overhead. Total manufacturing cost. Valve Company has offered to sell Motor 10,000 units of Part M-I for P18 per unit. If Motor accepts the offer, some of the facilities presently used to manufacture Part M-I could be rented to a third party at an annual rental of P15,000. Additionally, P4 per unit of the fixed overhead applied to Part M-I would be totally eliminated. Should Motor Company accept Valve Company's offer, and why? a. No, because it would be P5,000 cheaper to make the part. b. Yes, because it would be P10,000 cheaper to buy the part. c. No, because it would be P15,000 cheaper to make the part. d. Yes, because it would be P25,000 cheaper to buy the part.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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